A contested election in the US? What does it mean for markets?
At this time in the United States (8:00 pm on their Wednesday 5 November 2020) the presidential election is still being counted but it is clearly moving into the realm of recounts and legal challenges.
What do we know so far?
- The Democrats will keep the House of Representatives with a reduced margin.
- The Republicans will most likely keep the Senate (Susan Collins (R) has kept her seat in Maine despite the Democrats taking the presidential vote).
- The Democrats will gain the Presidency (winning Nevada with 6 Electoral College votes taking them to 270).
- There will be a delay in vote counting in some of the swing states and that is normal and provided for in the State’s laws.
Every State has a different rule allowing for ballot recounts. Let us assume that there will be recounts in every State with a close count.
What is a contested election?
A contested election is one that would take longer than a couple of weeks to resolve, where a recount has been allowed and where political parties use the courts to challenge every aspect of the re-count.
In the 2000 Bush-Gore Presidential election the result was not decided by the Supreme Court until 12 December that year. The quality of your legal team might make the difference in a contested vote.
What does a contested election mean for markets?
- A month-long legal challenge in 2000 created uncertainty for the markets with a fall of -8.5% in the US share market before recovering after the Supreme Court decision.
- Markets hate uncertainty and a nasty, contested election would create uncertainty.
- The markets are wary of two issues if the Democrats win all three levers of government:
- A ‘blue wave’ where the Democrats have control of all three areas of government: The House, the Senate and the Presidency. If this happened it would be easier for Joe Biden to get all his appointments approved in the Senate potentially putting progressives into key roles (e.g. Warren and Sanders) and it would be easier for the Democrats to raise taxes. These would be negative for the markets.
- A ‘blue wave’ would make it easier to get a decent stimulus Act through to help struggling small businesses and the unemployed affected by Covid-19. This would help markets.
- With the levers of government split between the Democrats and the Republicans:
- The markets are sensing perhaps the best of both worlds – not too many radical changes coming up but some sort of decision on some stimulus for the economy.
- Democrats will have to accept they will not be able to implement their agenda in the way they would if they held all the levers of government.
- The Democrats will have to wait until the 2022 elections, the ‘mid-terms’ to see if they can build to take some of the Republican seats from the Senate at that time.
Keep asking great questions ...